The OECD Model Tax Treaty: Tax Competition and Two-Way Capital

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2002-07.pdf (411 KB)

Date

2002-01-01

Authors

Davies, Ronald B.

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University of Oregon, Dept. of Economics

Abstract

Model tax treaties do not require tax rate coordination, but do call for either credits or exemptions when calculating a multinational’s domestic taxes. This contradicts recent models with a single capital exporter where deductions are most efficient. I incorporate the fact that many nations import and export capital. With symmetric countries, credits by both is the only treaty equilibrium, resulting in Pareto optimal effective tax rates which weakly dominate the non-treaty equilibrium rates. With asymmetric countries, the treaty need not offer improvements without tax harmonization. With harmonization, it is always possible to reach efficient capital allocations while increasing both countries’ welfares only if neither uses deductions.

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Keywords

International economics, Public economics

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https://hdl.handle.net/1794/90

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Economics Working Papers
Davies, Ronald B.